Standing Committee A

[Mr. Nigel Beard in the Chair]

Tax Credits Bill

Clause 23 - Payments

Amendment proposed [this day]: No. 101, in page 16, line 21, at end insert— 
'provided that the regulations shall not directly or indirectly require the recipient to hold a bank account'.—[Mr. Flight.]
 Question again proposed, That the amendment be made.

Nigel Beard: I remind the Committee that with this we are taking amendment No. 113, in page 16, line 21, at end insert—
'provided that the regulations shall provide that payment shall be through post offices where the claimant elects for payment by such method'.

Howard Flight: I welcome you to the Chair, Mr. Beard. At our previous sitting, I was first seeking a clear answer from the Minister about whether the Bill will provide for tax credits to be paid via coupons at post offices in the event that the universal bank arrangements are not up and running by April 2003. In other words, will there be a safety proviso to ensure that tax credits are paid? Secondly, as a matter of principle, if claimants, for whatever bona fide reason, wish to be paid directly at post offices via a coupon process when the new arrangements with the universal bank are in place, can they continue to be paid in that way?

Dawn Primarolo: I am happy to clarify those points for the hon. Gentleman. As I have explained, the preferred arrangements in connection with social exclusion, the development of the high street banks and the new types of accounts, and the post office is to transfer the money directly to a point at which the correct person receives it into an account from which he could draw the money. That would take account of a person's choice of using a post office, which was the first major point raised by the hon. Member for Arundel and South Downs (Mr. Flight).
 I had misunderstood slightly the hon. Gentleman's second point and I am grateful for his clarification of it today. The Bill provides for regulations that give the Inland Revenue the power to make payment directly to a bank account. That is our preferred option, as it will ensure that we further eliminate fraud when order books are mislaid, lost or used in ways in which they were not intended to be used. However, the regulations are permissive in that, although that is the preferred route, the Inland Revenue will still have the power to pay the person directly by a giro payment. I do not want to leave the Committee in any doubt. However, we shall encourage people to have accounts into which the money can be paid. 
 The hon. Gentleman wanted to ascertain whether the Bill provides powers to pay directly into bank accounts and removes the power to pay by the alternative giro payment method. I can confirm that both methods can be used. However, we could not send a brown envelope stuffed with cash. The two traditional methods of payment to which I have referred will remain, although as we progress with the universal bank, the work on the high street banks and the social exclusion agenda, we expect that payment will be made into bank accounts, but obviously there will be some exceptions.

Howard Flight: I thank the Minister for that clarification. I shall withdraw my amendment, but strongly advise her to get the plans to pay by coupon up and running because no one working on the universal bank—at least not those with whom I am in contact—expects it to be up and running by April 2003. I beg to ask leave to withdraw the amendment.
 Amendment, by leave, withdrawn.

Nigel Beard: We now come to the Programming Sub-Committee's further programme motion, which has been circulated.
 Ordered, 
That the Resolution of the Committee of 15 January be amended as follows— 
 (1) in paragraph (1), at end insert 'save that on Thursday 24 January the Committee shall meet between half-past Nine o'clock and half-past Ten o'clock and at Two o'clock; and 
 (2) paragraph (4) is omitted.—[Dawn Primarolo.]
 Clause 23 ordered to stand part of the Bill. 
 Clause 24 ordered to stand part of the Bill.

Clause 25 - Liability of officers for sums paid to employers

Howard Flight: I beg to move amendment No. 105, in page 18, line 2, leave out 'or neglect'.
 The amendment stands on its common-sense interpretation. The clause puts a liability on culpable officers. Officers could be secretaries and clerks as well as managers and directors, and they would be liable not just for fraud, but neglect. It is not clear what the regulations will do. What does ''liability'' mean under the clause? Does it involve recovering money paid by the Revenue, and does it mean that legal proceedings can be brought? 
 More important still is the inclusion of the word ''neglect''. No one doubts that people should be pursued for fraud, but neglect is a different matter. First, it is impractical to pursue for neglect as many businesses subcontract their payroll arrangements, so it is not be easy to identify the guilty person when there has been sloppiness. Secondly, ''neglect'' is a loose concept. Thirdly, it is inherently unreasonable for companies to undertake a task for the Revenue when the Government have made it clear that they have no intention of paying the costs thereof. It is inappropriate to pursue people for neglect. 
 Paragraph 103 to the explanatory notes suggests that in circumstances such as those that I described this morning, in which a company receives funds from 
 the Revenue to pay the tax credits and then collapses, the clause might be used to pursue the officers—not just senior members of staff, but officers at all levels—for the money that had gone because the company collapsed. An important point is that neither the Confederation of British Industry nor other representative bodies are aware that the clause can be interpreted in that way. The explanatory note suggests that, substantially, that is why it is there. It is wrong that that should be the intent of the Bill. 
 Fraud is a different matter. Let us suppose that there is a case of neglect. A company may have gone under due to adverse economic circumstances or being overburdened with Government regulations, its staff having done their best in the circumstances and having certainly not committed fraud. Not surprisingly, if people are struggling to save a business, they may be a little sloppy in administering tax credits. As the whole structure of tax credits is so sloppy anyway, it is unreasonable for the Government to have the power to pursue individuals personally—down to the payroll clerks—to recover money from them for neglect. 
 We want to know the Government's intention and what is meant by paragraph 103 of the explanatory notes. We are earnest in our belief that neglect is not appropriate.

Paul Boateng: I join the hon. Member for Arundel and South Downs in welcoming you, Mr. Beard, to the Chair this afternoon. It is a pleasure to serve under your chairmanship for the first time.
 Clause 25 allows regulations to be made to hold an officer of a company—in practice, that is usually a director—personally liable for the company's tax credits debts, when it is believed that the debt has arisen through fraud or neglect by that person. The amendment would limit the scope of the measure to cases of fraud and remove from it cases of neglect. 
 In practice, the Revenue would use the regulations when there appears to have been deliberate exploitation of companies' limited liability and the tax credit system, for a director or other officer's personal benefit. Sadly, there are occasions when unscrupulous directors attempt to use the status of limited liability to enrich themselves. It is necessary always to provide for that possibility. 
 It may seem, as the hon. Gentleman put it, that only the fraud test is needed, but there are two reasons why it is right to maintain the fraud or negligence test. First, there is an important argument of principle. Neglect simply means a failure to take reasonable care. It is right that, when companies have received significant sums of public money to fund the payment of working tax credit to their employees, the officers of the company should be expected to take reasonable care to ensure that the money is used for that purpose. That is not unreasonable. 
 Secondly, there are practical difficulties with a fraud only test. There will be cases when it is clear that there has been either fraud or neglect, but it may be difficult 
 to demonstrate categorically that there has been fraud rather than neglect.

James Clappison: I am grateful to the Financial Secretary for giving way. Of course, we all know how important it is to take good care of public money. I want to give him a slight warning. He did not spell it out, but there was an implication that businesses had asked for the responsibility. The Government are placing the responsibility on businesses. By and large, that responsibility is unwanted by them, and is of no benefit.

Paul Boateng: I take great exception to the notion that the provision, which is designed to address a real need on the part of our fellow citizens, is unwanted by businesses. There is no evidence to support that proposition. Responsible business people are concerned to ensure that the needs that the measure seeks to deal with are addressed. The measure is in the interests of social cohesion and good business and is welcomed by responsible business people. I do not accept that there is anything inimical to business interests in what we propose. The reverse is true.
 The danger of the amendment is that the deliberately dishonest would be able to hide behind the cloak of negligence, making it more difficult to counter such abuse. There is nothing new in the clause. Opposition Members would have come across such a clause on numerous occasions in the course of their service in the House when debating those who exploit limited liability companies. It is sad but true that some people—mercifully only a few—are unscrupulous and do not hesitate to exploit that particular status. 
 There is nothing new in the potential application of the clause to cases in which there has been negligence on the part of company officers. The Inland Revenue already has such powers in relation to the working families tax credit, the disabled person's tax credit and national insurance contributions, which go back many years. The amendment would be a backwards step in tackling such behaviour. 
 In an uncharacteristic display of party political rancour, the hon. Member for Arundel and South Downs suggested that, as a result of excessive regulation by this Administration, more businesses are going under—the implication being that fewer went under during the previous Conservative Government. As the hon. Gentleman knows, the reverse is true. In the four or five years since Labour came to power in 1997, many more businesses have been created than under the previous Conservative Government and their stewardship of the economy. Those businesses have also tended to last longer. In his heart, the hon. Gentleman knows that such a suggestion and his claim that the clause will be damaging to business is not supported by the facts. 
 Nevertheless, the hon. Gentleman raises a serious point about insolvency and I am happy to deal with that. By the nature of our system of enterprise, there will, quite properly, be some companies that genuinely fail. Directors of such companies will be unaffected by the provision. The power will be used only in cases in which directors have engineered the insolvency of their 
 own companies to avoid paying the working tax credits for which they received funding. Such individuals are unlikely to suffer personally, as I hope the hon. Gentleman accepts.

Richard Younger-Ross: The Minister used the word neglect when he spoke about companies that, through no fault of their own, find themselves in difficulty and make errors in their tax credit calculations. He referred earlier to hon. Members who had not been in the House for long. I apologise because I have not been a Member of Parliament for long and may not understand everything. Perhaps more learned hon. Members who come from the legal profession know better than me. I come from a simple trade—I do drawings. Is the Minister not talking about wilful rather than simple neglect? There may be a fear that the term ''neglect'' may penalise those who have inadvertently made an error.

Paul Boateng: I do not think that inadvertent error is caught by the clause. The important point is that people should be able to demonstrate that they have exhibited reasonable care, which is not a concept understood only by lawyers—there is common-sense application of the phrase ''reasonable care''. We all know it when we see it, and the courts are capable of judging whether reasonable care has been taken. With regard to those who exhibit reasonable care, there is no need to inject concepts of wilfulness. That would simply give lawyers a licence to make yet more money by arguing about the difference between wilful neglect and neglect.
 Those who take reasonable care have nothing to fear from the provision, but that is not the case with regard to those who do not fall into that category. Some people utilise the status of limited liability for their own purposes and follow a practice that is known as phoenixism. That is an interesting phrase. I had not come across it before but, on reflection, one can see why it is called that—a phoenix rises from the ashes. Those who deliberately engineer the insolvency and winding up of their companies for personal benefit and those who do not take reasonable care will be caught. It is right that that should be the case, and I hope that Opposition Members have been persuaded, by the explanations that they have received, not to press the matter to a Division.

Howard Flight: Nobody would disagree with the proposition that directors who have used limited liability to engineer an insolvency to purloin Revenue tax credit funding should be pursued—and I take on board the point that full-blooded fraud might not be involved. That is what we want the Bill to do, but that is not what it says. It gives a much wider power. There is a meaningful distinction between neglect and wilful neglect. If a company goes under, it is likely that there will be neglect, because everything will be at sixes and sevens.
 The Minister rightly made the point that it is likely that the people whom the Revenue will want to pursue are the directors. However, the Bill employs the phrase ''culpable officers'', and the definition of officer includes managers, secretaries, and any Tom, Dick and Harry. 
 It is unacceptable that legislation should prescribe wider powers than are needed, and which could subsequently be used in a different context. With regard to a company that has failed, the Bill currently gives the Revenue wide powers to go after the staff to recover whatever is owing. That is unacceptable, particularly as the Bill forces the task of administering the tax credits on companies, without paying them for the extra work. 
 We made it clear that it would be better if the Revenue performed that task. With regard to that, my hon. Friend the Member for Hertsmere (Mr. Clappison) was not arguing that businessmen do not support the concept of a fair society; the issue is whether businesses or the Revenue should administer that task. 
 I consulted a leading counsel on this clause. He forcefully took the view that it was inappropriate for it to contain the bare word neglect. To some extend the Minister's comments have had the effect of putting on the record an interpretation of the clause that can be used in legal proceedings. The Government may have allowed themselves, understandably, to be egged on by the Revenue to give it more powers than are necessary. Such powers should be defined more precisely to address the pheonixism that the Minister accurately described. 
 We are minded to vote on the amendment because it is a bad principle of law to introduce provisions that allegedly deal with problems, but are not sufficiently specific and consequently can be applied in a wider context. 
 Question put, That the amendment be made:—
The Committee divided: Ayes 6, Noes 10.

Question accordingly negatived. 
 Clause 25 ordered to stand part of the Bill. 
 Clause 26 ordered to stand part of the Bill.

Schedule 1 - Rights of employees

Paul Boateng: I beg to move amendment No. 90, in page 36, line 1, leave out 'claim' and insert 'complaint'.

Nigel Beard: With this it will be convenient to take Government amendments Nos. 91 and 92.

Paul Boateng: I hope that the Committee will find favour with these minor drafting amendments. They do not change the substance of the schedule.
 Amendment No. 90 is necessary because legislation provides for people to present a complaint, not a claim, to an employment tribunal. Amendment No. 91 
 is needed because paragraph 2 relates to Northern Ireland, where the bodies that consider employees' complaints are known as industrial tribunals—as they used to be in our jurisdiction—not employment tribunals. Amendment No. 92 corrects a typing error. The provision that is referred to should be article 71(1)(b) of the Employment Rights (Northern Ireland) Order 1996, not article 70(1)(b). These things do happen. The best laid plans of mice of men are gaen awa', as we say at this time of year, at least in Scotland. 
 The amendments will ensure that the wording of the schedule is legally correct. They do not alter the meaning of the schedule, and I hope that hon. Members will accept them. 
 Amendment agreed to. 
 Amendments made: No. 91, in page 37, line 10, leave out 'claim to an employment' and insert 'complaint to an industrial'. 
 No. 92, in page 37, line 14, leave out '70(1B)' and insert '71(1B)'.—[Mr. Boateng.] 
 Schedule 1, as amended, agreed to.

Clause 27 - Overpayments

Steve Webb: I beg to move amendment No. 67, in page 18, line 44, at end insert—
'but such a decision may only be made after it has been finally determined (on appeal or otherwise) under subsection 27(2A) that the excess if recoverable.'.

Nigel Beard: With this it will be convenient to take amendment No. 68, in page 18, line 45, at end insert—
'(2A) For the purpose of subsection (1) above, an excess is only recoverable if it is determined that, whether fraudulently or otherwise, any person has misrepresented, or failed to disclose, any material fact, and in consequence of the misrepresentation or failure an excess was paid.'.

Steve Webb: The amendments are a pair. They deal with overpayments and recovery of overpayment of tax credits. They would clarify the scope of recovery and the circumstances in which overpayment would be recovered.
 Under social security legislation, overpayments can be recovered if someone is found to have failed to disclose or to have misrepresented a material fact. We wonder whether similar provisions—which we cannot see in the Bill—will apply to tax credits. 
 Amendment No. 67 would define a category of excess payments that are recoverable by reference to a new subsection (2A), which is introduced in amendment No. 68. It determines that overpayments are recoverable, whether there has been fraud or—I hesitate to use the word ''wilful''—misrepresentation or deliberate failure to disclose. The genesis of the amendments is the problem of people who have to forecast their incomes. When someone's income from a previous year is recorded on a P60, there should not be problem. At the end of year, no reassessment 
 should be necessary, because that person's income in the previous year is historical fact, and will be known to the Revenue through the P60. However, if the person had to estimate his income in the current year, or if a change of circumstance has affected his entitlement, resulting in overpayment, what will be the scope for recovery of overpayment? 
 One case that springs to mind, for the purposes of the working tax credit, is of someone who is on the border of 29 or 30 hours, or 15 or 16 hours. Given that such matters will be determined on the basis of an annual average of hours worked, or the weekly equivalent of the annual average, it would be extraordinarily easy for someone to incur an overpayment, through no fault of his own, because he did not average his hours accurately. Consequently, he would find that a substantial overpayment could arise. For a single person who has to work 30 hours to get anything, who is in low-paid work and who therefore receives a generous tax credit, the amount of overpayment could easily be in excess of £1,000 for a year. 
 The amendments establish the circumstances in which there will be an attempt to recover overpayment. Will recovery be sought only when there has been fraud and deliberate misrepresentation, or will the Government try to recover money when there has been an accidental failure, or when someone's estimate of annual income is incorrect? The amendments are intended to mirror the social security provisions for recovery of overpayments. We hope that the Government will accept the amendments on that basis. Alternatively, will the Minister clarify any differences in the principles that will be applied to overpayments of tax credits?

Paul Boateng: I am grateful to the hon. Gentleman for his careful explanation of the amendments. I well understand his concerns. We have rightly debated at length the way in which the new tax credits system is designed to provide continuity of awards, with the capacity to adjust awards to reflect the changing needs of claimants. In particular, we have discussed the way in which the system will work in relation to changes in circumstances during the course of an award, and therefore the flexibility that clause 7 engenders in dealing with responses to income change. One key part of the work to be done on decisions about thresholds under clause 7, which I know is of great interest to the hon. Member for Northavon (Mr. Webb), will concern scope for overpayments of tax credits. To a certain extent, decisions made during the formulation of regulations on thresholds will have some bearing on the outcome of the scenarios that he described. He will understand why I do not intend to go down that road this afternoon.
 Amendments Nos. 67 and 68 relate to the circumstances in which the Inland Revenue would be entitled to recover an overpayment of tax credit. By importing wording from social security legislation, they would limit those circumstances to cases in which there has been a failure to disclose a material fact or misrepresentation. In a previous sitting, we had a discussion instigated by the hon. Member for Northavon about the extent to which the provisions 
 would reflect elements of both social security and tax legislation. Elements have undoubtedly been taken from both, but the whole is, and is intended to be, very different from that for social security benefits. 
 The provision that he described made a lot of sense in relation to social security benefits but would not be appropriate for the proposed system. As I said, claimants to new tax credits will have access to guidance and support through a variety of means to help them decide when they should notify the Revenue of a change that might affect their entitlement to tax credits. It is in no one's interest for people to run up debts that they will subsequently find difficult to repay. On the other hand, we do not want to impose obligations across the board for notification of changes when there will be a substantial number of people—for example, those who receive only the family element of child tax credit—for whom major changes would not affect their award. Why should we put them to the bother of notifying a change? 
 As I have said on numerous occasions, we must strike a balance. We want to minimise the scope for overpayment of tax credit through support offered to claimants and the type of regulations that will be made under earlier clauses. When awards are reconciled at the end of the year, some people will find that they have been paid too much tax credit with no fault on either their part or the Revenue's. In some cases, people may decide to wait until the end of the year before they finalise their entitlement. Provided that they have told the Revenue all that they should have done, that is fine and it is their choice. 
 It is only right and fair, however, to other recipients of the credit that the Revenue should be able to recover overpayment, just as it would pay out extra tax credits that were due. The same principle applies when the Revenue recovers tax that has been underpaid with no fault on either side. We have all been through that process. Some years we get something; other years we find ourselves paying more. It would not be right to constrain the Revenue as the amendments would. 
 The hon. Member for Northavon gave an example about hours worked and the annual average. The system would not work in that manner. Entitlement will be based on current non-financial considerations and income will be assessed annually. That is not a question of averaging out in the way that he suggests. People who worked 30 hours a week for the first six months of the year, would receive the 30 hours credit. That would not be clawed back, even if they did not work during the latter six months of the year. We make no attempt to average that out: people receive the credit when it is due. If they stop work or undertake fewer hours, they are not subject to clawback.

Steve Webb: I am grateful to the Minister. That is a helpful clarification for someone whose life is so clear cut that they work 30 hours a week for six months in a year. For a single childless person, 30 hours is the difference between zero and entitlement, which is a big cliff edge.
 What about people whose life is more random? Some weeks they may have an extra shift, or overtime. 
 In extreme cases, let us suppose that they do 30 hours one week and then 25 hours the next. What do they do?

Paul Boateng: Their entitlement will be based on their current financial circumstances. At the end of the year, if the reconciliation is such that some overpayment has been made, the provision will apply. That will be subject to regulations and thresholds. Short of accepting the sort of benefit model that the hon. Gentleman suggests, that cannot be avoided.

Steve Webb: I am glad that the amendment deals with the problem that I raised.

Paul Boateng: That is not always the case.

Steve Webb: The Minister said something that confused me. He mentioned the end-year reconciliation and referred to thresholds. However, thresholds concern variations in income, not absolute entitlement. The Minister seems to be saying that at the end of the year, people may find that the Revenue identifies weeks in which they were not entitled.

Howard Flight: The hon. Gentleman is hitting on the central problem of the lack of definition of what ''hours worked'' means. If it is defined as average hours per week during the tax year, the meaning is clear. For someone working 25, 30, 35 and then down to 25 hours a week, that averages out or it does not. As the Institute for Fiscal Studies pointed out, a major weakness of the Bill is the lack of clarity about that definition.

Steve Webb: I suppose that it has been decided that the amount will not be averaged and that there will be some notion of what ''current'' means. Until we see the regulations, we will not know what the definitions are.
 I am worried about the mixed messages from the Government on how often they want people to contact the Inland Revenue. The Minister said that the Revenue does not want to hear from those on higher incomes who receive only the children's tax credit. Wild fluctuations in their incomes will not make a difference to their entitlement. However, people whose hours are fluctuating will have to be on the blower every week. The entitlement of people who do a shift one week but not the next depends on their current circumstances. Under the current circumstances eligibility rules, if those people do not want to fall foul of the overpayment provisions at the end of the year and face a possible £1,000 repayment, they must report all those changes all the time. There is tension here. In the case of income-based assessment, someone can assess their income by performing an end-year reconciliation by comparing their forecast with what happened. 
 Claimants have to understand that if they are in the higher income band, changes to their income do not matter, but changes to their circumstances—marital status, hours and the rest of it—do matter. If they are in the lower income band, they should immediately report all changes so that a reassessment can be undertaken. I worry about how that will work. Employers are employing people whose hours will 
 vary, because that is the nature of their work. The board will require those employees to pay a tax credit one week but not the next if they do not satisfy the qualifying hours. 
 We have come a long way from annual assessment. This is a muddle that has nothing to do with the claimant, but with the uneasy marriage of current circumstance-based assessment and annual income-based assessment. They do not fit well together and we should revisit the issue. There will be problems even when the scheme is up and running. We are worried that people will receive money that is demanded back at the end of the year, because they did not report every shift. Such people will end up being penalised, possibly substantially. 
 The wording of the amendment and the attempt to mirror social security legislation may not be exactly what is required, but I have grave concerns about people who run up overpayments. The Minister has not greatly reassured the Committee so far that those people will be looked after properly, given the onus that is being placed on them to understand the different reporting rules.

Paul Boateng: As I said, I well understand the hon. Gentleman's concerns. We share a determination and an interest in ensuring that people do not find themselves moving in and out of entitlement. He described the Government's approach as an ''uneasy marriage''. That is not fair, but I do not underestimate the technical challenge of the route that we have taken, which is designed to avoid the possibility of people moving in and out of entitlement and to give people income when they need it to tackle poverty and to encourage them to advance themselves through work.
 We seek to meet those objectives in a flexible and understandable way. That is technically challenging, and that is why we are engaged in detailed discussions with those with an interest in this area to ensure that we get it right technically, so that people can get advice when they need it about how best to safeguard their interests. The outcome of those discussions has not yet been finalised in regulations. We are considering the hours that people usually work and not a 12-month average. 
 That is the best way of meeting our shared objectives. We do not want to impose on people across-the-board obligations that attract penalties. We want to ensure that people get in touch when they need to and to avoid the hazard that the hon. Member for Northavon illustrated. We are working closely with the stakeholders who have the greatest interest in this and we believe that the regulations will demonstrate that we have achieved that objective. 
 We hear what the hon. Gentleman says. We are working on it. The regulations will reflect that. I do not believe that the Bill is any the weaker. On the contrary, it is stronger because we are discussing it and are engaged in careful reflection and negotiation with those most intimately concerned about how to overcome those technical challenges. I hope that with that assurance the hon. Gentleman will not push the 
 amendment to a vote. We understand what he is getting at, but we do not believe that the answer is to return to the social security model. We recognise that there is a problem and we are trying to resolve it.

Steve Webb: I am grateful to the Minister for the spirit in which he responded to the amendments. He says that this problem is technically challenging. Indeed, it is. If it is technically challenging for the combined brains of the Treasury and the Inland Revenue, what will it be for the claimant? If it is so difficult to draw up rules that will embrace all the possible changes in circumstances, how can we come up with something that will prevent claimants—due to no fault of their own—running up overpayments that have to be recovered? We are trying to say yes in the case of fraud and failure to disclose material facts. In those complicated changes of circumstances at the margins, however, there should not be a presumption that overpayments will be reclaimed.

Paul Boateng: A television is a technically challenging invention. People worked long and hard to create that form of broadcasting. It is simplicity itself to turn on and off, once one has got over the cultural predisposition to have it on all the time, which my hon. Friend the Member for Warrington, South (Helen Southworth), who sits silently behind me, clearly shares. Despite the technical complexity of the instrument, once it is in place it is simple. My hon. Friend the Paymaster General pointed that out clearly and succinctly last Thursday. The whole point of this provision is to get the legal context right so that the regulations and explanatory documents that we will have available at our surgeries will enable people to access the help that they need when they need it.

Steve Webb: I am grateful to the Minister and I hope that he is right. I hope that once the wits of the Treasury and Inland Revenue have got together he can design some streamlined amendments that are straightforward for the claimants. I still have reservations. In answer to my query about someone working 30 hours, 29 hours, 30 hours and so forth, he said that it was the normal hours in the current circumstances that mattered. Normal implies some sort of short-term averaging. Clearly a snapshot of one week is not what is meant; it must take one week with the next and perhaps one month with the next. That immediately leads us to issues of reporting and what people have to say.
 I am trying to knock this on the head. We have a couple more sets of amendments on overpayments, so I will not pursue this amendment any further. I am grateful that the Minister says that these matters continue to be considered. I trust his assurances that he will come up with some streamlined regulations to deal with my concerns. I beg to ask leave to withdraw the amendment. 
 Amendment, by leave, withdrawn.

Steve Webb: I beg to move amendment No. 116, in page 19, line 13, at end insert—
'(6) No overpayment of tax credit may be recovered under this section or under section 28 until after the Board has laid before both Houses of Parliament a statement of its policy in respect of the operation of the sections following consultation on a draft of that statement.'.

Nigel Beard: With this we will consider clause stand part.

Steve Webb: Here we are again.
 The Low Income Tax Reform Group and other organisations have expressed reservations about the recovery of overpayments. Amendment. No. 116 is intended to prevent the powers under clause 28 from being exercised until the board has told people what to expect with regard to the recovery of overpayments. 
 One of my worries about the Bill is the loss of certainty. Working families tax credit may have had its problems and inflexibility and lack of responsiveness may have been among them, but that lack of responsiveness lasted for only six months. However, the National Association of Citizens Advice Bureaux and other organisations have suggested to us that claimants valued the certainty of that tax credit; they knew what they were going to get for six months. 
 I understand that a balance must be struck between the conflicting qualities of responsiveness and certainty, but what concerns me and organisations that deal with people on low incomes is that uncertainty might hang over such people; they might worry that at the end of the year the reassessment will leave them out of pocket, and that it might be decided that overpayments should be recovered from them. 
 That uncertainty is inherent in the sort of system that we are discussing. People ought to be informed of the sorts of circumstances in which overpayments will be recovered—it might be possible to do that when they make a claim, by handing them a sheet of paper that lists such circumstances. They should also be informed about the mechanism by which that overpayment might be recovered. If, at the end of the year, someone found out that they owed a few hundred pounds, they should know in advance how that would have to be repaid—as a lump sum, for example, through the tax code, or through underpayment of future tax credit—and how that decision would be made. That matter links in with the next clause. 
 The amendment is not intended to prevent the exercise of the powers provided in the clause. It is intended to ensure that people know, before the powers are exercised, the criteria for applying them and their mechanisms and practicalities. That would give claimants a degree of certainty.

Howard Flight: Clearly, we cannot have such a vague and woolly system. Those who are entitled to tax credits should be required to follow simple rules that they can understand—regardless of whether those rules address every conceivable matter of fairness. If the rules are not easy to understand, people will either be put off applying, or they will make mistakes. The situation will be a mess.
 Those rules also need to contain a fair and firm system for the return of overpayments. If that system is loose and woolly, people will exploit it to the maximum. Logically, the system should operate in a similar way to the underpayment of income tax—but the other way around as, regrettably, people will probably be excluded from subsequent tax credits and 
 they will be required to make a payment if they no longer qualify for such credits. 
 To borrow the Minister's metaphor, if a black box—a television—was invented that would deliver a lovely picture if it was switched on, but nobody understood that it was a television or knew how to switch it on, I cannot see how it could operate. With regard to tax and tax credits, it is axiomatic that people should understand what they are—and are not—entitled to. They cannot have a dialogue with the Revenue—or with anyone else—unless that is the case.

Paul Boateng: In our debates on amendments Nos. 67 and 68 and earlier clauses, we discussed overpayments that might arise as a consequence of the new fiscal tax credits, but through no fault of the claimant or the Revenue. I explained to the Committee that we want the tax credit system to adjust to meet changes experienced by claimants, but without it imposing a disproportionate burden on them or subjecting them to intrusive monitoring. We want people to receive what they are entitled to at the right time.
 I return to the theme that has been characterised in my responses and those of my hon. Friend the Paymaster General. The Revenue will be providing guidance to ensure that that is so. It is inevitable, however, that when the final entitlement has been determined, some people will have been overpaid or underpaid for the year. People who have been subject to numerous changes during the year may choose to wait until the end of the year to sort matters out, while others may find that their income for the year, when finalised, produces a change in their entitlement. 
 When debating clause 7, we referred to the importance of any threshold that had been set under the regulations and the care that we are taking about the decisions to be made in such matters. People who have been underpaid will have the extra tax credit paid into their bank account. Overpayments of tax credit are dealt with under this and the following clause. Clause 27 establishes that there is an overpayment, while clause 28 provides for the means of recovery. No doubt Opposition Members will have views on that. 
 Clause 25 gives the Revenue the power to decide whether all or part of an overpayment should be recovered. It makes the claimant liable for that repayment. With joint claims, the clause makes both claimants jointly and severally liable. However, the Revenue may also decide that each partner should be able to repay a specified amount of that overpayment. Such a decision might be made when it was clear that the overpayment was the result of action by one partner, of which the other knew nothing. Overpayment arises when a final decision is made under clause 17. 
 There will be times, however, before the decision has been made, when it is clear that there will be an overpayment. For example, a claimant may have been receiving tax credits in respect of two children, one of whom has gone to live with someone else during the award. It may be some time before the Revenue is notified of that. The clause also allows payments to be adjusted to recover an overpayment in anticipation of 
 the final decision about the award. It is right that the Revenue should have that power, but we aim to ensure by advising and educating the claimant that the number of tax credit overpayments to be recovered is kept to a minimum. That is the reason why the information must be given, why the advice should be made available and why we should make the system as clear as possible for those who are to benefit from it. When overpayments arise, clause 27, together with clause 28, will enable the Revenue to deal with them fairly and sensibly. 
 Amendment No. 116 would require the Inland Revenue to consult on its policy about the recovery of an overpaid tax credit and to lay a statement before both this House and the other place. Only then will it be possible for the board to start recovering overpayments. I can well understand the objectives of the hon. Member for Northavon in tabling such an amendment, although I do not consider that its procedure is necessary or right. It is overly cumbersome and procedurally fraught. However, I understand what he is getting at and I assure the Committee that we shall continue to ensure that we take into account the worries that have been expressed by NACAB and others about the measure. That is why the Revenue plans to produce a code of practice on its compliance work in relation to new tax credits. It will also set out how it intends to exercise its discretion in the recovery of overpaid tax credits, provided for under clause 27. 
 So we will certainly consider and reflect the views of others in preparing that code. My hon. Friend the Paymaster General will be taking a close, personal interest in the Revenue's proposals. The code of practice will be made available in draft for comments, so there will be plenty of opportunity for NACAB and others to form a view. Indeed, there will be an opportunity for the hon. Member for Northavon and his colleagues to form a view as to whether the code is fit for purpose. The purpose of publishing it and making it available in draft for comments is to make sure that we get it right. As hon. Members on both sides of the Committee have said, even if one supports the objectives, the aims and the means of the legislation, one can honestly have different views about how best to achieve them. That is why we are making the draft code available for comments. 
 I hope that in the light of that assurance, and with the prospect of having a personal input into the thinking of the Revenue—[Interruption.] Well, it is an opportunity not to be sneezed at. I hope that the hon. Gentleman will feel able to withdraw the amendments.

Steve Webb: I am grateful and heartened by the mention of a draft code of practice. I am assuming that by that the Minister means that such a document would be publicly available before the Inland Revenue applies the powers. That seems to be the logic of what he is saying. It certainly goes some way towards addressing our concerns.
 One hopes that once the code of practice is in force—perhaps I could sow this seed in the collective conscious of the Revenue—a summary version will be 
 available to recipients, perhaps once a year when they receive their annual reconciliation statement. That will give people the certainty that we are seeking. Heartened by the Minister's characteristically inclusive approach, I beg to ask leave to withdraw the amendment. 
 Amendment by leave withdrawn. 
 Clause 27 ordered to stand part of the Bill.

Clause 28 - Recovery of overpayments

Steve Webb: I beg to move amendment No. 52, in page 19, line 35, at end add—
'(6) Where an amount is liable to be repaid under subsections (3) to (5), the amount repaid in any period may not exceed a specified percentage of the person's income during that period, such percentage to be set out in regulations.'.
 We are back on overpayments again. Clause 28 allows overpayments to be recovered in one of three ways, as I understand it. A recovery may be made through a request for a lump sum—or an account—through the PAYE system, or through an underpayment of tax credit. 
 What clause 28 does not do, and what our amendment seeks to do, is to put some sort of ceiling on the rate at which overpaid tax credits can be recovered. We do not want to tie the hands of the Government in any way so our amendment merely provides regulatory powers—with due deference to the Conservative Whip, the hon. Member for Mid-Worcestershire (Mr. Luff)—to pass regulations that would prescribe the percentage rate at which recovery could be made. 
 Clearly, at the margin, if someone's income has gone up or down a bit and they remain below the threshold, no overpayment will be made. However, when someone's circumstances change—a relationship breakdown or other changehich—it can take several weeks before the authorities hear about it, for understandable reasons, and quite a significant overpayment can arise. A person who becomes a lone parent as result of such a relationship breakdown and who, perhaps, must give up work, could have a large overpayment and a small current income. There is nothing in the Bill that tells us how quickly the board would try to recover the money. Will the Minister tell us the Government's thinking? Would it try to recover any overpayment during the following year? Is that the maximum time during which recovery will be attempted? I would be worried by that. If a person is receiving benefit because they have a low income and a large repayment is to be recovered over a 52-week period, substantial sums could be involved that would leave the person with little to live on. 
 The precedent for such circumstances—I hesitate to refer to the social security system, but what the heck—are procedures such as the recovery of social fund payments. There are guidelines about the rate at which payments may be recovered. Similarly, even under the convoluted child support legislation, there are ceilings on the percentage of someone's income that may apply in maintenance assessments. Higher ceilings exist for arrears, which is an analogous system to the one that 
 we are discussing. The concept of ceilings on percentages of income is familiar in the system. 
 Will there be a ceiling in regulations? Must we force the Government's hand, or are they ahead of us? Have they drafted regulations to that effect? I mention the specific case of a childless person who goes on to jobseeker's allowance but has an overpayment of tax credit. PAYE is not relevant to that person because they do not pay tax. Underpayment of their tax credit by the Government would be irrelevant because they would not be entitled to it. A lump sum bill saying, ''You owe £1,000,'' would not help either. I understand that those are the three ways in which the Government may recover overpayments. Will the Minister address that specific case in addition to our general worry about the rate of recovery of overpayment? 
 What powers will the Government use to recover money from a person who no longer receives tax credits, who is not handled by the PAYE system and who cannot pay a lump sum? Our worries about maximum thresholds are germane to such a case. I hope that the Minister will reassure us that he is ahead of the game.

Paul Boateng: The clause provides for the mechanisms by which an overpayment of tax credits may be recovered after provisions in clause 27 have established that that is due. There are three ways to do that, which the hon. Member for Northavon touched on. Money may be deducted from future payments of tax credits, obtained direct from the claimant as if the money were a tax debt—the ordinary law of debt recovery and judgment will apply—or by adjustment to the PAYE coding.
 In practice, the first avenue used to collect overpayments would be deduction from future tax credits. The Revenue will establish guidelines under the code of practice to which I referred the hon. Gentleman earlier for the maximum amount by which a future award could be reduced to allow the recovery of an overpayment. That is necessary to avoid people experiencing undue hardship while the recovery is being made. That experience would be self-defeating within a measure that is designed to combat poverty and its effects, particularly if that relates to children. 
 Further recovery methods may be used if deduction from future payments is impossible. For example, as the hon. Gentleman mentioned, there may no continuing entitlement to tax credits. A debt would exist and a range of measures would be available to those who are entitled to enforce a debt. The ordinary range of measures, which would be available to any of us who are owed debts, will be available to the Revenue. I have already made it clear that the aim is to minimise incidents of overpayment, but the clause provides a variety of means of recovering money in a fair and cost-effective way when such incidents occur. 
 The hon. Gentleman asks whether we will try to recover everything in the following year. The answer is a categorical no for the reasons that I have described. That would be self-defeating. The time scale for recoveries will and must depend on the claimant's 
 resources and the amount of the overpayment. Those are the deciding factors. 
 It is important to consider whether a non-PAYE person or someone who is not in receipt of tax credits should be required to pay the sum at once. Again, the answer is no. The clause simply provides for direct repayment to become due and payable after 30 days. That does not mean that after 30 days a demand for the full amount will arrive for people on low incomes. However, repayment is then due, and one would require the Revenue to exercise proper discretion when considering the claimant's resources—again, the guidance is important—and to bear in mind the amount of the overpayment. The Revenue should proceed accordingly.

Richard Younger-Ross: The Minister has kindly explained that there will be no instant demand, and that repayment will be spread over time. When people who deal with PAYE underpayment talk to the tax office at the beginning of the year, they hear, ''You have underpaid £500. We want it now.'' I have experienced two instances of that, and it was the Inland Revenue's fault. There is still the shock of a bill for £500. Will the Minister ensure that the guidelines and regulations make it clear that there shall be no demands such as, ''You have been overpaid £200. We want it back''? The Revenue should state that there has been an overpayment, and that repayment will be expected over a period. It should state how it will deal with the matter, rather than argue about the period for repayment.

Paul Boateng: The hon. Member for Northavon referred to the collective consciousness of the Revenue. That is a rather scary phrase. One thinks back to watching ''Doctor Who'' in one's youth, and imagines something amorphous and pulsating in a hidden room in the Treasury. There is no such entity, but we are anxious to ensure that we take into account the sort of constructive representation that the hon. Member for Teignbridge made. I do not doubt that the hon. Gentleman's point will be taken into account not only in the guidance, to which I have referred, but in the care that will be taken in drafting the standard communications with those in receipt of tax credits.
 The exact wording of those communications is not an appropriate matter for the Committee, but it is important to make sure that the wording of all communications will not be such as will instil apprehension and fear. That is a serious point, because for many people, any communication from what is perceived as authority—or from actual authority—instils fear. That is something that we must take into account. It is important to remember that for those in receipt of income support or jobseeker's allowance there is no power to deduct tax credit overpayments from the amount they receive. 
 As I said earlier, the Inland Revenue will need to consider cases individually. It will consider the amount of the overpayment and the individual's resources before determining the period over which payment should be recovered. With that explanation, I hope 
 that the hon. Gentleman will withdraw the amendment.

Steve Webb: A question remains about the Minister's response to my example of a childless person who is not on PAYE and does not receive tax credits. Such people fall into the third category, which is tax debt; they are treated akin to someone who owes tax. However, someone who owes tax on a particular date but does not pay it has to pay interest. Will people in the circumstances that I have described have to pay interest? That would be intolerable, but I do not know whether the relevant section of the Taxes Management Act 1970 implies that or allows flexibility. It would be helpful if the Minister would clarify that point.
 More generally, I am not sure whether the Minister said that the code of practice would deal with maximum rates of repayment. He seemed to imply that it was not in the Revenue's interest to push someone into hardship, but as the Revenue has first claim on someone's money, it has nothing to lose by making life tough for them. That was not a tremendous reassurance, which is why we seek to put in place something more meaty in the form of a threshold. 
 We are concerned about the Minister's reliance on codes of practice as distinct from regulations, for which the amendment would provide. Regulations are not subject to the same scrutiny as primary legislation, but codes of practice are subject to even less scrutiny. Secondary legislation may not receive serious scrutiny, but codes of practice receive none once they have been put in place, and changes in codes of practice are not scrutinised at all. They do not go before bodies such as the Social Security Advisory Committee. I have reservations about relying on a code of practice, which, once we have commented on a draft, we may never see or have an opportunity to comment on again. People need protection and parliamentary scrutiny of that protection. 
 How hard people will be pursued for debts that they may have incurred through no fault of their own is a fundamental point. I mentioned relationship breakdown. Whether or not a breakdown is permanent may not be immediately apparent. Indeed, it may be weeks or even months before that is clear. If the breakdown is then reported and the Revenue decides that the reassessment should take place from the time when one partner moved out, even though the breakdown was not seen as permanent at that point—that may be a grey area—someone could run up a big overpayment and end up on benefit with a tax debt. 
 I asked the Minister to clarify whether the debt would incur interest, but even if it did not, the person would still have a big liability hanging over them. The Minister assured us that the Revenue would not push too hard because that would not be in its interest, but in fact very little constrains the Revenue from trying to get its money. The Minister's response did not entirely reassure me, so I shall test the Committee's opinion. 
 Question put, That the amendment be made:—
The Committee divided: Ayes 5, Noes 9.

Question accordingly negatived.

Clause 29 - Incorrect statements etc.

James Clappison: I beg to move amendment No. 24, in page 19, line 38, leave out ''fraudulently or''.

Nigel Beard: With this it will be convenient to take amendment No. 114, in page 20, line 14, leave out ''fraudulently or''.
 New clause 10—Fraudulent incorrect statements— 
''(1) If a person fraudulently—
(a) makes an incorrect statement or declaration in or in connection with a claim for a tax credit or a notification of a change of circumstances given in accordance with regulations under section 6 or in response to a notice under section 17, or
(b) gives incorrect information or evidence in response to a requirement imposed on him by virtue of section 14(2), 15(2), 16(3) or 18(2) or regulations under section 24 he shall be guilty of an offence.
(2) A person guilty of an offence under subsection (1) above shall be liable on summary conviction to a fine not exceeding level 5 on the standard scale, or to imprisonment for a term not exceeding 6 months, or to both.''

James Clappison: We now move from overpayments to the penalty regime, which is constructed between clauses 29 and 33. Clause 29 provides for penalties for persons who make incorrect statements in applications for tax credits. A person who fraudulently or negligently makes incorrect statements or declarations may be subject to a penalty of up to £3,000. In many respects, that mirrors provisions already in place in the Tax Credits Act 1999.
 The purpose of the amendments and new clause 10 is to separate fraudulent statements from negligent statements and make fraudulent statements subject to a more serious regime. We had a short debate about negligence earlier. I do not think that there is an important difference between—

Nigel Beard: Order. I beg the Committee's pardon. I omitted to put the clause stand part question for clause 28.
 Question proposed, That clause 28 stand part of the Bill.

Paul Boateng: I wonder if I might take this opportunity to put a point on the record about interest on overpayments. It is of interest to those who observe our proceedings and to those who subsequently read the record. My comment has a direct bearing on the debate on clause 29, and I would
 have made it then, Mr. Beard, if you had not given me an opportunity to do so now.
 It would be our intention to seek interest only if the overpayment arose because of fraud or neglect. The hon. Member for Northavon would have pressed the matter to a vote even if I had mentioned that earlier. I could see him working himself up to pushing for a vote. However, it is important that the record should be clear: people who receive overpayments in the circumstances that we described and receive notice of overpayment due after the 30-day period will not have to pay interest if they do not pay immediately or if they pay over a period of time. 
 Question put and agreed to. 
 Clause 28 ordered to stand part of the Bill.

James Clappison: The image still in my mind is that of television. We have now had a demonstration of video equipment from the Minister, who has given a proficient demonstration of playback. I will not freeze frame but will endeavour to fast forward—back to the future—to clause 29, which is about fraud and negligence. We believe that fraudulent statements are more serious than negligent statements and should be dealt with accordingly; that is the purpose of new clause 10.
 Amendment No. 69 probes the Bill's implications for negligent statements under the new tax credit arrangements. However, we wish to make fraudulent statements a criminal offence and ensure that they are dealt with as such under clause 29. In order to assist deliberation on the subject, we would like to know how many of the 478 penalties that were imposed for false working families tax credit applications since the system began in October 1999 were for fraudulent statements and how many were for negligent statements. We would like to have clear information about the operation of the penalty regime. 
 The Paymaster General recently told me in correspondence that the Inland Revenue was not recording information about how much was recovered through tax credit penalties. Until 26 October last year, penalties received as a result of tax credit investigation settlements and tax credit penalties were recorded as income tax. Only since 29 October last year have tax credit investigation settlements and tax credit penalties been recorded separately from income tax. The Paymaster General told me that, in the first two months of recording tax credit receipts separately—as penalties and settlements—the Inland Revenue collected £191,000 in settlements and £50 in penalties. We would like to have clearer information about that, and greater transparency in the system. We detest fraud, and no doubt that view is shared by all members of the Committee. As a criminal matter, fraud should be taken seriously, and we want to see it dealt with as a criminal offence.

Paul Boateng: Through the amendments, he hon. Member for Hertsmere wants to remove from clause 29 the reference to fraudulent behaviour. He would prefer that such behaviour were dealt with as a new
 criminal offence under his proposed new clause. I agree with the hon. Gentleman—as I am sure do all members of the Committee—that we want to ensure that the compliance framework for the new tax credit is effective against those who may attempt to abuse the system. Fraud is undoubtedly such an abuse and it is our objective to prevent it, while not deterring people who are genuine from claiming their entitlement.
 I want to explain how we propose to take such action. In the light of our intentions, the hon. Gentleman's proposed new clause 10 is redundant. Nothing would be caught under it that would not already be caught under the new criminal offence introduced under clause 33. The Bill already makes clear provision to counter criminal abuse of the system, and the criminal offence that the hon. Gentleman wants to introduce would not add anything to that. 
 We are always open to suggestions about how the law may be made more effective and, as the hon. Gentleman knows from previous exchanges with me in Committee, we are open always to suggestions on how to improve the focus of criminal justice measures, particularly as they relate to fraud of the public purse. We do not believe that new clause 10 would achieve anything that is not already achieved under clause 33. If he has a contrary view, can he establish any defect or failing under clause 33? I am not sure whether it is his intention that civil penalties should not be available in cases of fraudulent behaviour. If so, amendment No. 24—and amendment No. 69, which we shall discuss when we reach the next group of amendments—would remove ''fraudulently'' and ''negligently'' from the clause. That would mean that we do not have a civil penalty either, but clearly that is not his intention.

James Clappison: In the first part of my remarks, I said that amendment No. 69 was a probing amendment.

Paul Boateng: I am grateful to the hon. Gentleman. Were that not the case, penalty provisions would be available whenever someone made an incorrect statement or provided inaccurate information, including cases of fraudulent behaviour. That would not be desirable. It would even make the penalty available where there was neither fraud nor neglect. It clearly would not be right to punish an innocent error in that way.
 Perhaps we should look at cases where there has been an innocent error. The hon. Member for Northavon has expressed concerns about that in the past. The Government's policy for tax credits, as for tax matters more widely, is that civil penalties should be applied in most cases of fraud but that there should be criminal prosecutions in cases of serious or organised fraud. Governments of all political persuasions have adopted that approach. It is cost effective and experience tells us that prosecutions for minor frauds do not generally result in sentences likely to provide a realistic deterrent. 
 We want to ensure that we develop a legal framework that is effective, but proportionate in its response, and that gives us a compliance regime that is fit for the purpose. We think that we have got the 
 balance right. I do not think that the improvements suggested by the hon. Member for Hertsmere would turn out to be improvements at all. They are either unnecessary or technically flawed. However, we accept the spirit that underlies them, which is to bear down hard on fraud and to make it clear that fraud is unacceptable and will result in a proportionate response.

James Clappison: I am grateful for the spirit in which the Minister responded. I will endeavour to answer his main point, but there is another important point that I should make first. The amendment is designed to deal with fraud and is not intended to deter people from claiming the credits to which they are entitled, or to deal with people who receive an overpayment through no fault of their own or who, through their own failing or carelessness, but not dishonestly or fraudulently, receive too much working families tax credit. It is designed to get at people who deliberately set out to defraud the system by making deceitful representations. There is a big difference between those who form a dishonest intention to deceive the system and the honest person who perhaps loses out as a result of the dishonest activities of the fraudsters.
 The Minister asked me why the provisions in clause 33 are not sufficient and why we want to have this additional new clause. Clause 33 could be improved. We would like to see a stiffer penalty. Even were that not the case, it is possible under the existing provisions of tax credit to prosecute people for false WFTC applications. That has been done. I would draw more confidence from the Minister's response if the prosecution policy had been more vigorous. So far, the number of prosecutions has been very low indeed. No one can reasonably say that the extent of fraud in tax credits is reflected by the number of prosecutions. It is more likely that fraud is going unprosecuted. Either it is not being detected or, when it is detected, it is being dealt with by penalties rather than prosecutions. The new clause would mean that if someone acted fraudulently or made a fraudulent statement, they would be prosecuted for a criminal offence. 
 I have listened carefully to the Minister's comments. I want to reflect on his points but, at the moment, I am not entirely satisfied by his response. Notwithstanding the generous spirit in which he put forward his response, we are concerned about the issue and may wish to return to it on Report. On that basis, I beg to ask leave to withdraw the amendment. 
 Amendment, by leave, withdrawn.

Steve Webb: I beg to move amendment No. 69, in page 19, line 38, leave out 'or negligently'.

Nigel Beard: With this it will be convenient to consider the following amendments: No. 70, in page 20, line 14, leave out 'or negligently'.
 No. 72, in clause 35, page 22, line 21, leave out 'or neglect'.

Steve Webb: The amendment stands in the names of several hon. Members, but I shall speak to it first.
 We are dealing with the same issue, which is the distinction between fraud, on which we are all keen to clamp down, and innocent error. At one end of the scale, many Conservative amendments are aimed at toughening the Bill's provisions on fraud, and I understand that, but the motivation behind this group of amendments is to ensure that the provisions on people who are subjected to penalties and, with amendment No. 72, interest penalties do not apply to people who make genuine errors. To have an idea about why we are concerned about that, it is worth reading a sentence from the explanatory notes on clause 29, which say: 
''Clause 29 provides for a penalty of up to £3,000 to be imposed on any person who fraudulently or negligently provides a false or incorrect statement or incorrect information or evidence in respect of a claim''.
 If we take out the part about fraud, on which we all agree, and the part about false or incorrect statements, we get this: 
''Clause 29 provides for a penalty of up to £3,000 to be imposed on any person who negligently provides incorrect information''.
 We have discussed the difference between negligence and wilful negligence. The Minister suggested that adding ''wilful'' would give the lawyers a field day, but it seems to me that any definitional issue makes a field day for the lawyers. They will spend just as long and earn just as much discussing what negligence means as they would discussing what wilful negligence means. It would benefit the innocent to strengthen and clarify what we mean by negligence, although the three amendments would take out the relevant part altogether. 
 The Bill contains clauses concerning penalties and interest. Someone who was deemed to be negligent, although a lay person might not judge them to be culpably negligent, could face a combination of repayment of overpayment, interest on the overpayment, a penalty charge, interest on the penalty charge and, if the negligence bordered on fraud, that panoply as well. Do we need all of those measures? 
 For people on high incomes, an error on their income would probably not affect their entitlement, but if people on low incomes get something wrong, it would affect what they receive. We are dealing with a client group who are generally on low incomes and understandably might neglect to keep proper records. The culture shock for the highest earners in the land of the record-keeping implied by self-assessment was quite something, and many people still rely on the traditional shoebox technique. If we extended that to a group of people whose incomes are much less predictable, whose record-keeping is on average likely to be poorer, and who do not have accountants, it would make it much more likely that they would neglect to record or supply something. 
 A related issue refers back to clause 14(2) and concerns a person who fails to supply information—perhaps some supporting information for a claim. Such people can be deemed to have supplied the information. For example, if a person is sent a form asking whether their circumstances have changed and they do not send it back—it gets stuck behind the sofa 
 or they are busy with other paperwork or whatever—they are deemed to have said that their income has not changed. 
 Should it transpire that the income has changed by a relevant amount, the system says that that is negligence, which incurs a potential fine of up to £3,000, recovery of the overpayment, interest on the overpayment and possibly also interest on the penalty charge should the person not have current means. In the clause 28 stand part debate, the Minister said that interest would be charged for negligence and not only for fraud. 
 We are hammering people with a concept of record keeping that goes beyond anything they have previously faced. By proposing in the amendment that ''negligently'' be removed, we seek Government reassurance us that they will only go after people who exhibit culpable or wilful negligence. Such cases are on the borderline of fraud and are far from those at the other end of the spectrum involving people who are not good at record keeping, whose lives are haphazard, or whose dealings with officialdom are somewhat chaotic. We have all met such people and we do not want them to be fined £3,000.

James Clappison: The Committee has had a trailer of my views on this matter in the comments of my hon. Friend the Member for Arundel and South Downs. I have sympathy with some of the remarks made by the hon. Member for Northavon. We must be vigilant about public money, ensuring that it is properly returned and that people who have been negligent are penalised when appropriate. However, we must also be realistic about the circumstances of some of those who fall within the ambit of the system, their resources and, in some cases, their culture.
 We are discussing negligence, which, under the new system, is a failure to discharge duties. On top of everything else, we are imposing additional duties on claimants under the new system of yearly income assessments and the requirement on them to notify of changes in their circumstances. By extending the duties that we place upon people, we increase the scope for potential negligence. The Minister must give us a careful explanation that strikes a balance between vigilance and realism.

Paul Boateng: I shall deal first with the point made by the hon. Member for Northavon about lawyers when they discuss fraud and negligence. I am sorry to disabuse him of another of his cherished illusions, but he is mistaken in his belief that it is not possible to excite legal activity by introducing words into legislation that, of their very nature, excite a feeding frenzy among lawyers. Anything that suggests an additional mental element in criminal or civil law will lead to extra debate among lawyers. Terms such as ''knowingly'' and ''wilfully'' are the subject of much discussion among lawyers.
 No doubt like my legal colleagues on the Committee, I have spent many a happy, lucrative and productive hour discussing the additional element required to satisfy a definition that contains ''knowingly'' or ''wilfully''. That is why, although it 
 is difficult to get rid of the term ''knowingly'' from the law, great efforts have been made by parliamentary draftsmen for many years to avoid using the term ''wilfully'' because it adds little other than an opportunity for lawyers to discuss the additional import of the word. 
 A problem surrounds the concept of wilful negligence. Is it not somewhat a contradiction in terms? If one has a sufficient will to do something, can one be held act negligently? I see the look on the face of the occasionally—mercifully, normally—silent one on the Conservative Benches to whom, surprisingly, Liberal Democrat Members sometimes defer. It is a dangerous practice to defer to Conservative Whips—even Conservative Members seldom defer to their Whips. I know that I am trespassing on ground that you would not want me to explore, Mr. Beard. 
 I assure the hon. Member for Northavon that nothing is served by adding the term ''wilful''. For years, the term ''fraud and negligence'' has existed in law in relation to tax, national insurance contributions and, now, tax credits. It is well understood by lawyers, advisers and those who have an interest in those matters. In our view, there is no point in tampering with it. It does not include, and does not result in, penalties or interest for those who have made an innocent error. People who have made an innocent error will not be trapped by that phrase, or, indeed, by the provisions that the hon. Gentlemen seek to amend. 
 The purpose of clause 29 is to provide for financial penalties when a person fraudulently or negligently makes an incorrect statement in relation to tax credits, or provides incorrect information.

Steve Webb: The Minister is responding helpfully. Will he give an instance of an action that would be negligent but not fraudulent in this context?

Paul Boateng: Yes. If, in the hurry of a late return of information, an item were omitted innocently—through an oversight—there would not be a problem. However, as the hon. Member for Hertsmere mentioned earlier, when a course of action has been taken that is clearly motivated by a deliberate and dishonest attempt to draw a veil over certain activities and obscure them from the attention of the Revenue, that is fraud. One is deliberate dishonesty, while the other is failure to take reasonable care. The third category is omission by accident. If one has made no attempt to communicate, one has shown unwillingness to respond to queries, or one has shown a determination to take no interest in ensuring that the Revenue is aware of a relevant fact, that is clearly a failure to take reasonable care.

Karen Buck: My hon. Friend has been extremely helpful in explaining the matter, but I am still a little worried. That is partly because of the examples—with which all Committee members will be familiar—of people whose level of functional literacy is not high. Such people are not used to regularly completing forms unaided. I would be most worried about those whose record keeping is shambolic. Into what category of treatment would they fall? How will people cope if they do not have the experience and literacy skills needed to
 compile the information for which they are to be asked?

Paul Boateng: Let me give an example. Someone who fills in an incorrect income figure because he cannot be bothered to look at his payslip is not being fraudulent, but negligent; he is not taking reasonable care. Let us suppose that someone puts down £175, when the figure is £195. That could be the result of an innocent misreading of the payslip, which is in script form. However, if a person writes down £95, it would be harder to believe that such action was innocent. It might not be fraudulent action, but it shows a lack of reasonable care. If there were a query and the person still wrote down £95, it would show that he had stepped over the boundary from negligence, and that his action was fraudulent.
 We all know from constituency experience that some people lead lives that appear shambolic to others. However, it would be wrong to believe that they have no clear sense of what is coming into the home and what is going out. Sometimes, they have a clearer sense of outgoings than income, but in the main people are fairly clear about such matters, even if some of the detail is fuzzy. It would not be right to underestimate people's capacities in such matters. 
 My hon. Friend the Member for Regent's Park and Kensington, North (Ms Buck) is right to remind the Committee to make sure that the guidance given, the discretion exercised and, when it is relevant, the prosecution's policy take the whole picture into account. Often the recipients of tax credits do not have the degree of familiarity with forms and figures that can be expected of those who utilise the PAYE system.

Richard Younger-Ross: I said previously that I expected a learned member of the Committee to correct my use of the words ''wilful negligence'' and to define them better than I can. However, I used that term before because I worry about people who make mistakes at the boundary—not between negligence and fraud, but between negligence and error. We are dealing with people whose lives may be shambolic and who have difficulty dealing with forms, let alone tax return forms, because they have never had to deal with them before. Most of us are fairly intelligent, but we struggle with tax return forms—I certainly do. I put up my hands and am honest about it.
 Some people are on the edges. One person's negligence is another person's lack of understanding. We want an assurance that people will not be hurt or penalised through another's lack of understanding.

Paul Boateng: I hope that I have made it clear that we do not intend to include innocent error in the category of neglect or fraud. Everything that my hon. Friend the Paymaster General and I have said reinforces our intention to ensure, with aid of the Revenue and the National Association of Citizens Advice Bureaux, that understanding of the provisions is thorough and that people are aware of their responsibilities and rights. As in every other area of
 life, we must strike a balance between rights and responsibilities.
 There is a long-established test of negligence, which will apply to those who failed to take reasonable care in making their claims, or in providing information. Circumstances are relevant: bereavement or family crisis, for example, are relevant to determining the reasonableness of people's responses. There are no penalties for innocent mistakes, and the Revenue has to prove fraud or negligence. If there were a dispute about an accusation of negligence, it would be resolved by the tax commissioners. I know that hon. Members have concerns about the appeals process, but the commissioners are experienced in deciding cases of negligence. They understand the test, and will be well placed to apply it. 
 In the light of that detailed explanation, I hope that the hon. Member for Northavon will withdraw the amendment, and that the hon. Member for Hertsmere will not press for a vote.

James Clappison: I am not minded to press the amendment to a Division.

Steve Webb: We are grateful to the Minister for his expertise and comments. Perhaps it was unfair to spring the question on him, but when I asked him what might constitute negligence, but not fraud, the first example that came to his mind was a person who is in a hurry to submit the form and misses something out. If that is negligence, it falls in the scope of the penalties. I would not want such a person to suffer a £3,000 fine.
 The Minister gave other examples that more clearly illustrate the definition of negligence. We are in a grey area, but our amendments are somewhat blunt in their proposed removal of all references to negligence. The Minister referred to an instance in which a person had a pay slip but did not bother to look at it. However, we do not want people to reach the stage of appealing to tax commissioners. The clause is too sweeping in scope, and we might want to refine the types of negligence that we want to exclude at a later stage. I beg to ask leave to withdraw the amendment. 
 Amendment, by leave, withdrawn.

James Clappison: I beg to move amendment No. 18, in page 20, line 1, leave out ''£3,000'' and insert ''£5,000''.

Nigel Beard: With this it will be convenient to discuss the following amendments: No. 19, in page 20, line 10, leave out ''£3,000'' and insert ''£5,000''.
 No. 20, in page 20, line 18, leave out '£3,000' and insert '£5,000'.

James Clappison: As I said earlier, the distinction between fraud and negligence is that the fraudulent applicant sets out to deceive the system and knowingly engages in fraud. In our consideration of earlier amendments, I was unable to persuade the Minister that there should be a more serious regime for fraudulent statements, and that those who make them should be prosecuted for fraud. I invite him to consider that there should instead be a more serious penalty under the penalty regime for people who behave fraudulently. A maximum penalty of £3,000 is not sufficient. A maximum penalty of £5,000 should be
 available to cater for the worst cases: those who commit fraud by making fraudulent statements.

Paul Boateng: I expect the criminal sanction to apply in the worst cases, in which there is serious or organised fraud. Let us be up front about that. However, we are discussing a civil penalty. Although I share the hon. Gentleman's revulsion of fraud of any sort, I am not persuaded that there should be a distinction between the current tax system, in which a maximum civil penalty of £3,000 is set, and tax credits. That is a bit like the old suggestion that social security fraud should be punished more severely than any other form of fraud or theft from the public purse. That is not borne out by proper sentencing policy.
 Fraud is unacceptable and must attract a penalty. I am not convinced that the penalty for those who are negligent or commit fraud in relation to PAYE should be less than the penalty in relation to tax credits, simply because PAYE has always existed in its current form and tax credits are a development of the social security system. It would be unfortunate if that were to creep into our thinking. They should be treated alike. As the current maximum penalty is £3,000 for the ordinary tax system, so it should be for the development of that tax system in the form of tax credits. The case has not been made for more stringent penalties for tax credit claimants compared with others who have breached their tax obligations. 
 Nevertheless, I take the point that it is important to mark any act of fraud or negligence that has caused loss to the public purse through the tax system in a way that is commensurate with the harm done. The good news is that that will be the case under the system that we propose, just as it is under the current system. Because the penalty applies to each claim, if a person has persisted in making incorrect statements over a period, the total maximum penalty will far exceed £3,000. Those responsible for prosecuting such cases—it is not a matter for Ministers—will prosecute the more serious cases using the criminal sanction. For the civil sanction, the penalty should remain £3,000. I hope that the hon. Gentleman is sufficiently satisfied, if not persuaded, not to press the matter to a vote.

James Clappison: We want to treat any case of fraud as a serious matter. I take issue with the Minister about whether public sector benefit fraud is treated as seriously as private sector fraud, when someone who obtains funds by similar deception—making a false statement—from a building society, bank or other financial institution faces a penalty of criminal prosecution. The statistics seem to show that prosecutions for false statements in the benefits system are few and far between. That is a debate for another day. We will come to it when we deal with later clauses.
 I will consider carefully what the Minister said. I am far from satisfied with his response as I believe that there should be a more serious penalty for those who commit fraud. Given that I may wish to return to the issue later, I beg to ask leave to withdraw the amendment. 
 Amendment, by leave, withdrawn. 
 Clause 29 ordered to stand part of the Bill.

Clause 30 - Failure to comply with requirements

Steve Webb: I beg to move amendment No. 71, in page 20, line 28, leave out ''14(2)''.

Nigel Beard: With this it will be convenient to take amendment No. 109, in page 20, line 28, leave out
'or regulations under section 24'.

Steve Webb: Clause 30 introduces yet more penalties, not for incorrect statements but for failure to supply information. Amendment No. 71 would remove from its scope people who are in the process of making a claim. For reasons that we will deal with in a moment, they should not be penalised if they do not supply information that they have been asked for, thereby halting the processing of their claim. That is the significant point.
 As the CPAG remarked, 
''people have liabilities to pay tax but they do not have liabilities to claim tax credits.''
 People can decide whether they wish to claim, see through a claim or withdraw a claim that they have initiated. Under the clause, which includes a reference to section 14(2), they can be penalised a £300 lump sum and another £60 a day for not providing information that would facilitate the progressing of a claim. 
 If someone decides to withdraw a claim, they would suffer a penalty for not supplying information that would facilitate processing it. For example, they may realise that information of a personal nature that they do not want to disclose, perhaps to a partner, would become known. Indeed, there is no obvious facility for withdrawing a claim; again, applicants would suffer a penalty for not supplying information. 
 The amendment would remove the penalties, not for people who are receiving or who have received money or who fail to supply information that might reduce the amount of the payment, but for people who have only made an initial claim. They should be able to withdraw the claim or give it up by not supplying information. At present, that appears to incur a penalty, which is not appropriate.

James Clappison: I shall speak briefly to amendment No. 109, which concerns information that will be sought from employers under regulations in clause 24. Employers are in a different position because, unlike claimants who provide information in support of their claim for tax credits, they will receive no direct benefit. I do not wish to go over old ground again with the Minister and debate indirect benefits for employers. They face prospective penalties and may also face burdensome regulations. We make a plea to the Government to keep the burden of information that is asked of employers to a reasonable minimum. The Government are making substantial powers by regulation to require information of employers. I will not press the amendment, but I moved it in the spirit of keeping the burdens on employers to a minimum.

Paul Boateng: I am grateful for the way in which the hon. Gentleman spoke to the amendment. I assure him
 that we will bear in mind the way in which the Revenue relates compliance and burden to employers. We will expect employers to act reasonably and they will face a penalty if they do not. However, I take the point that we should ensure that compliance is not unduly burdensome.
 There is no question that the situation is different for people who are not in the business of engaging in fraud or a concerted action by deceit to obtain money. If a person makes an application and chooses to withdraw it in the ordinary circumstances of the case, there would be no question of imposing a penalty. I give the Committee that assurance. 
 Penalties may arise in a case such as this. If an application is made and the informal approach, which will always be made, is rebuffed, the application would be persisted with and a formal request made under formal powers. If there were still resistance, it is important that the Revenue should be able to invoke powers to require information to be provided within a set deadline. A penalty should be imposed for failure to do that. 
 There are safeguards against the indiscriminate application of penalty provisions. Penalties cannot be applied if there is a reasonable excuse for failing to provide information. If an application were made in an ordinary way but it were not pursued—that would be the end of the matter—that would appear to be a reasonable excuse. The initial penalty under the provisions is not at the Revenue's discretion because only the commissioners may impose it. 
 After hearing those reassurances, I hope that the hon. Member for Northavon will not press the amendment to a vote.

Steve Webb: We want to remove clause 14(2) from the scope of clause 30. Clause 14(2) relates to situations in which no public money is paid. It is a preliminary stage. The clause states:
''the Board must decide . . . whether to make an award . . . and . . . if so'',
 how much that should be. However, before the board decides, it asks for information. If the person who makes the claim fails to provide that information and the claim does not proceed with any public money payable, I cannot think of circumstances in which we would want clause 30 to apply to clause 14(2). No public money would be handed over unless information were supplied. If it is not handed over, why do we want to penalise people for not supplying the information? 
 I am grateful for the Minister's reassurance that only the commissioners will impose the penalty. On the assumption that they would not want to use the power, although it is in the Bill, I beg to ask leave to withdraw the amendment. 
 Amendment, by leave, withdrawn. 
 Clause 30 ordered to stand part of the Bill.

Clause 31 - Failure by employers to make correct payments

James Clappison: I beg to move amendment No. 21, in page 21, line 17, after 'fails', insert 'without reasonable excuse'

Nigel Beard: With this it will be convenient to take the following amendments: No. 38, in page 21, line 22, leave out subsection (2).
 No. 39, in page 21, line 22, after 'employer', insert 'without reasonable excuse'.

James Clappison: The clause provides that a penalty of up to £3,000 can be imposed on an employer who fails to make correct payments. Is there not a case for at least giving employers a let-out from liability under the clause when they have a reasonable excuse for the omissions? The opportunity to put forward a reasonable excuse is available under the preceding clause in the case of, for example, an applicant who fails to supply the correct information. However, the same opportunity is not given to an employer. In fairness, is there not a case for doing so? It would certainly be welcomed, especially by small and medium-sized enterprises. We have debated under previous clauses the burdens that the provisions would impose on such businesses.
 Clause 31(2) seems to be a stiffening-up of the equivalent provision under the Tax Credits Act 1999, which would appear to be section 9(7). It provides that an employer is liable for a penalty if he 
''fraudulently or negligently makes or receives incorrect payments''.
 The requirement for the employer's failure to be established as fraudulent or negligent is removed and the employer faces what the Minister will recognise as a regime of strict liability, which is a stiffening-up as far as employers are concerned. Why is that stiffening-up being proposed at a time when concern is being widely expressed about the increasing burdens on employers?

Paul Boateng: Uncharacteristically unfairly, I portrayed the hon. Gentleman in an earlier debate as living a life of perpetual unease. In this regard, however, his lack of ease is entirely justified. He has put his finger on an error on our part. It is only right that I should own up to that—it's a fair cop, guv, you caught me bang to rights. The hon. Gentleman will be gratified to hear that he has put his finger on an omission. It was not our intention that penalties should be imposed on the basis of strict liability. We shall table an amendment in due course to make that absolutely clear. It would be wrong to penalise an employer for a course of action when the mistake was entirely innocent.
 I must disappoint the hon. Gentleman on his first point, however. Our view is that there can be no reasonable excuse for refusing or repeatedly failing to pay tax credits to an eligible employee. We are not persuaded of the strength of the hon. Gentleman's amendment and I hope that, on reflection, he will feel able to withdraw it.

James Clappison: What can I say? I am grateful to the Minister for that response. If I did feel unease in
 relation to amendment No. 38, it has been removed. On the basis of the Minister's generous remarks, I beg to ask leave to withdraw the amendment.
 Amendment, by leave, withdrawn. 
 Clause 31 ordered to stand part of the Bill.

Clause 32 - Supplementary

Steve Webb: I beg to move amendment No. 117, in page 21, line 30, leave out 'has effect' and insert—
'shall take effect on the laying by the Board before both Houses of Parliament of a statement explaining— 
 (a) how it will balance the need to encourage persons entitled to claim a tax credit to do so with the need to control abuse so far as is reasonably practicable, 
 (b) its criteria for deciding whether a claimant has been fraudulent or negligent, the manner in which it will exercise its discretion in cases of minor error, and its prosecution policy in relation to claims for a tax credit, and 
 (c) the relationship between these criteria and those relating to income tax and national insurance contributions, 
 following consultation on a draft of that statement.'.
 I am being prompted by hon. Members on both sides of the Committee that a football match is due to start imminently, but I will not allow that to inhibit me from giving the exhaustive analysis of schedule 2 that I had planned. 
 We have been here before. The board has wide powers to impose penalties under schedule 2 as conferred by clause 32. We sought before to have guidance notes published and we should like the board to set out its approach to the imposition of penalties—the definition of negligence and so on—so that claimants know where they stand. 
 I will give an example of a grey area. Clause 29, which deals with one set of penalties, explicitly states that if one member of a couple did not know what the other was up to, he or she is not deemed culpable for that. However, that exemption is not explicit in clause 30. Someone is let off the penalties for incorrect statements if they did not know what their partner was up to, but it is not clear whether that applies to the penalties for not complying with requirements. 
 We seek a consistent statement, in the code of practice produced by the board if not in the Bill, that explains how the board will approach those issues. The penalties are quite serious, especially for the client group under discussion, and people might reasonably expect such a statement to be put in place before the penalty regime is imposed.

Paul Boateng: I hear the hon. Gentleman's argument, but I regret that I am unable to satisfy him on the amendment except to say that the thrust of his arguments will be taken on board. It is important to remember that the proper place to reflect that is not in the Bill, where the requirement is unnecessary, but in the code of practice on compliance. It will be made available in draft for comment, and the hon. Gentleman will have his opportunity to make an impact on the collective consciousness of the Revenue then. With that satisfying prospect in sight, I hope that he will withdraw the amendment.

Steve Webb: As I said before, my reservation about that strategy and that response from the Minister is that, after my initial profound impact on the consciousness of the Revenue, any subsequent changes that it decides to make without the benefit of my benign impact will be unbeknown to me and to members of the Committee. There is an issue about scrutiny.
 On a slightly more serious note, we are talking about quite serious penalties for quite poor people and there are grey areas about neglect and so on. I am concerned that the level of scrutiny will not be all that it might be, but I am grateful that we have had further clarification at least on the draft code of practice for the Revenue. That goes some way to addressing our concerns and we look forward to seeing the draft. I beg to ask leave to withdraw the amendment. 
 Amendment, by leave, withdrawn. 
 Clause 32 ordered to stand part of the Bill. 
 Further consideration adjourned.—[Mr. Sutcliffe.] 
 Adjourned accordingly at one minute to Seven o'clock till Thursday 24 January at half-past Nine o'clock.